Posts Tagged ‘Glencore’

GLENCORE HAS YET TO CONVINCE INVESTORS The panicked sell-off may have stopped, but Glencore, the Swiss mining and trading company, still needs to convince investors and analysts that it is out of the danger zone, Stanley Reed reports in The New York Times.

The problems that have sent the stock reeling this summer remain, from its heavy debt load to the slowing Chinese demand for commodities. And, as Bloomberg News reports, investors are nervous that the 29 percent plunge in its share price could happen again.

Analysts doubt that Glencore is unable to pay its debt, but it will remain under pressure until it can address investors concerns about it.

The company has moved to cut its debt*, but this may not be enough. Commodity prices may have farther to fall and Glencore is dependent on forces that it cannot control.

Many have also struggled to explain exactly why the company’s stock should have plunged so suddenly on Monday. The fear that the drop caused reminded people of the moment that Lehman collapsed, a trader told Bloomberg News.

The company is trying to get back to business as usual, but damage has been done. Sellers of default insurance on Glencore bonds are demanding more compensation for the risk than a month ago.

A failure to deliver about three million pounds of cotton owed to Noble Agri, a rival commodities trader, has also intensified the spotlight on Glencore, The Financial Times reports.

That happened in May before the recent turmoil, but Glencore may have to pay a financial penalty and the failure to deliver comes at a delicate moment. Glencore is trying to sell a minority stake in its agricultural business, which includes cotton trading, to help pay its debt.

It was reported last week in the FT that Standard Chartered awarded Bill Winters, its CEO, shares worth more than 6 million pounds, or about $9 million, to compensate the bank’s new CEO for income he forfeited by leaving the hedge fund he founded. The upfront payment comes as the shares have hit new six-year lows.

Meanwhile GIC must be ruing not selling out of Glencore because on Monday in London

FT reports that according to Nomura, half of StanChart’s Asian revenue in the first half of 2015. More https://atans1.wordpress.com/2015/09/10/hohoho-two-brokers-views-on-stanchart/

NYT Dealbook last Tuesday.

MORE SIGNS OF A SHARPER SLOWDOWN IN CHINA Once the world’s workshop, China’s exports are facing their most protracted declines since the global financial crisis, Neil Gough writes in The New York Times. China’s trade slump deepened in August – an indication of a sharper industrial slowdown at home and weaker demand from overseas. Exports fell 5.5 percent in August and 1.4 percent in dollar terms in the first eight months of the year.

The country’s manufacturing sector is losing competitiveness as labor costs rise and the renminbi remains relatively strong despite its devaluation, making Chinese goods more expensive for foreign buyers.

Imports are falling even more steeply. They fell for the 10th month in a row in August, recording a drop of 14 percent by value. Economists blame the rout in commodity prices, but imports have fallen in volume too. The falling imports of industrial raw materials point to weakening domestic demand, driven by a slump in manufacturing and new housing construction.

The weak trade data weighed on markets, with Japan’s main index, the Nikkei 225, closing 2.4 percent lower. In Shanghai, stocks initially fell when the trade figures were released, but heavy buying in the afternoon set off a rally. Shares closed 2.9 percent higher – a pattern seen often in recent weeks, as China’s government appears to continue its efforts to support the slumping stock markets.

China’s leadership made the surprise decision last month to devalue the currency by about 3 percent, the renminbi’s sharpest drop in two decades. But the central bank has since intervened in the markets on a massive scale, fighting pressure to weaken the currency further by selling dollars and buying renminbi.

As a result, China is burning through foreign exchange reserves at the fastest pace yet. Reserves fell by nearly $100 billion in August alone, though they are still huge at $3.56 trillion.

Still, analysts say that the recent devaluation was most likely too modest to give China’s exports much of a boost, and that the exchange rate is still stronger than China’s slowing economic growth would otherwise support.

How do you make a £2bn fortune from commodities? Answer: start with a £6bn fortune.

Ivan Glasenberg, chief executive of Glencore, won’t be laughing. Those numbers are the value of his shareholding in the mining and commodity-trading company at flotation in 2011 and now. Yes, Glencore’s share price really has fallen by two-thirds, from 530p to 180p, since it came to market with a fanfare. Among London’s big miners, only Anglo-American has done worse.

This week alone the fall has been 10% as the China-inspired rout has run through commodity markets and mining stocks. Glencore is being whacked harder than the likes of BHP Billiton and Rio Tinto for a simple reason – relative to earnings, it has a lot more debt.

At the IPO in April 2011, GIC took US$400m worth of shares, the second largest stake. The fund had already invested in Glencore through a convertible bond issued in 2009. At IPO time GIC was way ahead given that since the IPO had a market cap of US$62bn, it made a killing on its 2009 investment. https://atans1.wordpress.com/2011/04/15/gic-has-a-winner-with-glencore/

Glencore says it will stop funnelling sales from its Australian coal operations through Singapore, a move that comes amid growing concern in Canberra about the impact that alleged tax avoidance by multinational mining companies is having on the country’s tax take …

[It said this to an] Australian parliamentary inquiry scrutinising the use of Singapore marketing hubs by BHP Billiton, Rio Tintoand Glencore to reduce the mining groups’ tax bills.

Glencore told the committee that almost half its Australian exports flow through S’pore …

They owned significant stakes of the four (BoA, Citigroup, UBS and Barclays) of the 10 biggest dogs that had fleas on their fleas between 2002 and 2012. To be fair, the big stakes were bought in late 2007 or early 2008. GIC and Temasek each has two dogs to their shame. GIC still owns stakes in UBS and Citigroup. Temasek cut its losses at the nadir of the financial crisis of 2007-2009, in early 2009, allowing hedgies and Arabs to make money on BoA and Barclays.

(Remember how the constructive, nation-building local media were trumpeting the purchases as indication that our SWFs were “the greatest”. Well they were “the greatest”: the greatest mugs. Funny our media never told us that.)

Hope GIC’s big stakes in Glencore and Bunge (both commodities traders, the former in metals, the latter in agricultural products) don’t go the way of UBS and Citigroup (big banks).

GIC now has over 5% of Bunge.

Via shares and convertible bonds that convert into Glencore shares, it also has a significant stake in Glencore. GIC has been doing some financial engineering to reduce its cost of Glencore shares, which I assume it bot at the IPO. The price has fallen 18% since then. As to its convertible bonds, it is getting a good interest rate of 5% but the equity value of the bond is 17% down, I calculated.

GIC recently raised its stake in Xstrata by 20% and trimmed its holding in Glencore International after the companies said they planned to combine. GIC has increased its Xstrata stake to 29.05 million shares from 24.1 million shares since Feb 8, the day after Glencore offered to acquire the shares in Xstrata it doesn’t already own for US$37.6 billion, data compiled by Bloomberg show. GIC cut its Glencore stake by 21% t to 33.2 million shares.

As trading and mining house Glencore is listing, making some mgrs billionaires, commodity prices have fallen for a second day in early trading in Europe, led by another drop in crude oil.

This comes after markets were hit by one of the biggest sell-offs in two years on Thursday. Brent crude fell 4.3% to below $106 a barrel, adding to a 8.6% drop on Thursday, and bringing its cumulative fall over the past week to over 16%.

Industrial metals such as copper also saw further falls, as did some foodstuffs.

If this goes on, the view blogged here earlier that the Glencore IPO is a sign that commodities mkts have peaked for the time being, was a gd call.

In Dec 2009, GIC and a few other investors (including BlackRock, Fidelity and a Rothschild) invested US$2.3bn in the convertible bonds of a then private Glencore. The convertibles put a value of US$35bn on Glencore, a trading co with a 34.5% in mining co ,Xstrata

Analysts now put the value of soon to be listed Glencore at between US$55-70bn.

If Glencore lists at the expected US$60bn, then the US42.3bn issue of convertible bonds will be worth US$4.3bn in Glencore shares.

You might not have heard of Glencore. There is little news of its upcoming IPO in our MSM because the US$10bn IPO will be listed in London and HK. This would value the company at US$145bn

Co is a trader in commodities.

With oil at USD120 and demand for most commodities strong, why should this float mark the end of an uptrend in commodities? Well the US Fed is likely to stop printing money and the European Central Bank is likely to join emerging market central banks in raising interest rates. China has juz raised interest rates for the second time in four months.

Remember Blackstone? In 2007, Blackstone, a private equity firm went public at US$36. A year later, the stock was at US$5. The private equity boom had ended. It is now only recovering.

Shrewd money knows when to cash out and Glencore has some of shrewdest minds in the commodities market.

Glencore International, the world’s biggest commodity trader, has bought a 51% stake in Chemoil Energy for US$233 million ($325 million) from the Chandran Family Trust.

It paid 35.52 US cents a share: 21.1% discount to the closing price of 45 US cents, on Friday.

In late May this year, just before rumours of Glencore buying a stake appeared, Chemoil was trading at around the 30 US cents level. The rumours pushed it to as high as 56.5 US cents.

Moral of the story: buyer of a controlling block may not need to pay a premium to market. It all depends on its bargaining power vis-a-vis the seller. And whether there is another major shareholder willing to deal: Itochu Corporation, a Japanese conglomerate, with a 37.5% stake in Chemoil, was apparently contented with its stake.